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This report documents the systematic repurposing of state institutions in accordance with a political project mounted by the Zuma-centred power elite. It was demonstrated that the purpose of this political project is systemic illegal and/or unethical rent-seeking action.

These premeditated and coordinated activities are designed to enrich a core group of beneficiaries, to consolidate political power and to ensure the long-term survival of the rent-seeking system that has been built by this power elite over the past decade. To this end, a symbiotic relationship between the constitutional state and the shadow state has been built and consolidated.

At the nexus of this symbiosis between the constitutional and shadow states are a handful of the same companies and individuals connected in one way or another to the Gupta-Zuma family network. The way this is strategically coordinated constitutes the shadow state. Decisions made within this nexus about what happens within the constitutional state are executed by well-placed individuals located in the most significant centres of state power – in government, state-owned enterprises (SOEs) and the bureaucracy.

The official testimony to the Public Protector by former deputy finance minister Mcebisi Jonas – that has not been successfully and credibly contested – is about how he was offered a place in this network with a R600m bribe. This transaction reveals the clear modus operandi of those who operate within the shadow state and how this has made it possible for them to gain control of the constitutional state.

Crucially, we have no idea how many others accepted these kinds of unimaginably enormous bribes. Those who resist this agenda are systematically removed, redeployed to other lucrative positions to silence them, placed under tremendous pressure, or hounded out by trumped-up internal and/or external charges and dubious intelligence reports.

Centralisation

It has been argued in this report that the Zuma-centred power elite has sought to centralise the control of rents to eliminate lower-order rent-seeking competitors from about 2012 onwards.

The ultimate prize was control of the National Treasury because this gives the power elite control of the Financial Intelligence Centre (which monitors illicit flows of finance), the Chief Procurement Office (which regulates procurement and activates legal action against corrupt practices) and the Public Investment Corporation (the second largest shareholder on the JSE), as well as the power to issue guarantees (which is essential for making the nuclear deal work). The Cabinet reshuffle in March made possible final control of the National Treasury.

The capture of the National Treasury, however, followed four other processes that consolidated power and centralised control of rents:

- The ballooning of the Senior Management Service in the public service to create a compliant, politically dependent bureaucratic class;

- The routing of the good cops from the police and intelligence services, and their replacement with loyalists prepared to cover up illegal rent seeking (with some forced reversals, for example, Robert McBride);

- Redirection of the procurement spend of the SOEs to favour those who are prepared to deal with the Gupta-Zuma network of brokers (those who don’t – such as Robert Gumede from Gijima during the Transnet IT tender process – don’t get the contract, even if they have better BEE credentials and their price is lower); and

- The consolidation of the Premier League as a network of party bosses to ensure that the national executive committee of the ANC remains loyal because it is implicated in the flow of large amounts of cash to keep this political Ponzi scheme going.

Radical for whom?

At the epicentre of the political project mounted by the Zuma-centred power elite is a rhetorical commitment to radical economic transformation.

Unsurprisingly, although the ANC’s official policy documents on radical economic transformation encompass a broad range of interventions that take the National Development Plan as a point of departure, what is emphasised by the Zuma-centred power elite is the role of the SOEs and, in particular, the procurement spend of the SOEs.

Eskom and Transnet, in turn, are the centrepieces of this strategic focus on SOEs as the drivers of radical economic transformation. This is because Eskom is regarded as key to ensuring that the nuclear deal happens, and Transnet because it is regarded as key to ensuring that the mining industry is captured and the Transnet properties released to a select group of private companies.

In short, instead of becoming a new economic policy consensus, radical economic transformation has been turned into an ideological football kicked around by factional political players within the ANC itself and the alliance in general, who use the term to mean very different things. Crucially, radical economic transformation is used to give ideological legitimacy to what is essentially a political project to manage the symbiotic relationship between the constitutional and shadow state.

What needs to happen

To resolve the current crisis, three things must happen. Firstly, the Gupta-Zuma network comprising a handful of the same companies and individuals that holds the symbiotic relationship between the constitutional and shadow state together needs to be broken and dismantled. This will require political action within and outside the tripartite alliance to dislodge President Jacob Zuma as the kingpin of the symbiosis, coupled with legal action to criminalise and bring the perpetrators of state capture to justice.

To this end, the Public Protector’s recommendation that a judicial commission of inquiry be established must be an urgent priority. It will also require bold action by the banking sector and the SA Reserve Bank to expose and shut down the financial mechanisms that the shadow state uses. The closing of the Oakbay accounts was a brave step, but does not go far enough. The Gupta-Zuma networks have rapidly reconfigured and found ways to circumvent these restrictions.

The signing of the Financial Intelligence Centre Act amendment bill, for example, grants false comfort because implementation could be thwarted because of the fractured and weak nature of the law enforcement agencies.

The purchase of Habib Bank must obviously be prevented by the regulators concerned.

Furthermore, every effort must be made to protect the information technology systems of the Independent Electoral Commission from being taken over by a Gupta-Zuma linked company. If this happens, as some suggest may be the case, the ANC elections in December and the general elections in 2019 have very little chance of being truly free and fair.

Secondly, a new national economic consensus is required. This has not been given serious attention beyond setting out multiple policy frameworks and bureaucratic processes. The short-lived post-1994 Reconstruction and Development Programme developed by the presidency was unilaterally replaced by the Growth, Employment and Redistribution strategy in 1996 – a policy framework developed by the department of finance and adopted without approval from the alliance partners.

At the same time, the department of labour’s presidential labour market commission came up with a social plan.

A few years later, the Accelerated and Shared Growth Initiative for SA was also adopted without a full consensus. The adoption in 2002 of the “developmental state” framework came closest to a consensus, but it lacked substance and focused primarily on a weakly defined industrial policy framework that has failed to induce confidence in the economy; and public investment in infrastructure as a way of “crowding in” private investment.

The adoption of the New Growth Path later on did not improve matters, especially when this was interpreted by Malusi Gigaba after he was appointed as minister of public enterprises in 2010 as a licence to transform the governance of the SOEs. The economic policies inscribed in the National Development Plan (NDP) also did not enjoy full support of the alliance partners, not least because the NDP is pessimistic about the future of manufacturing, saying virtually nothing about de-financialisation, and is vague when it comes to achieving employment-centred development in an environment where trade unions have policy influence.

While the external environment in the wake of the global financial crisis has had adverse effects on South Africa’s growth outlook, governance failures and policy uncertainty have inflicted the most damage.

Promises made by the ANC to alliance partners after the final draft of the NDP was published that further work will take place to strengthen the economic policies of the NDP were not implemented. The department of trade and industry’s industrial policy framework, adopted in 2007, was resisted by National Treasury, which argued against “picking winners”, thus thwarting the implementation of industrial policy in South Africa.

In short, there has not really been a broadly shared and fully supported economic policy framework. Radical economic transformation is already a factional political football.

One can speculate that a positive outcome of this political crisis would be the adoption, for the first time, of a new economic consensus that can unite the different factions of the alliance by giving real substance to radical economic transformation while enjoying broad stakeholder support in the business community, labour sector and civil society. Without this, the Zuma-centred power elite will be able to co-opt radical economic transformation to mask ongoing rent-seeking practices via the manipulation of SOE procurement spend. This is unlikely to crowd in private investment.

The nuclear deal will most likely be justified in terms of radical economic transformation, masking how Eskom’s procurement system and the issuing of a sovereign guarantee will be used to effectively hand over the South African economy to foreign interests. The open secret, of course, is that this is intended to be the Russians. The nuclear deal is the ultimate “big and shiny” capital intensive project that reinforces the mineral energy complex, crowds out investment in the cheapest energy available (renewable energy), increases indebtedness to foreign lenders and, of course, benefits the cohort of rent-seeking corrupt insiders.

New consensus

A new economic consensus will have to address the core challenge of investment. After 1994, the combination of the shareholder value movement, BEE and financialisation redirected surpluses away from productive employment-creating investments. Since they were adopted in 2007, industrial policies have not had much success beyond defending the position of the automotive sector and limited successes in the clothing and textile sector, which remain vulnerable in the face of global competitive challenges from other developing countries, as well as risks around the longevity of the African Growth and Opportunity Act, which has been a boon for the auto sector.

The introduction of the Black Industrialist Programme has diverted focus from implementing good industrial policy strategies. It would seem the black industrialist scheme, as good as it seems on paper, has been poorly administered, with little value created thus far.

Since 1994, compared with its peers in the rest of the world, South Africa has been an anomaly. High returns on investment are usually associated with high investment levels, as is the case with China. In South Africa, returns on investment have been similar to China’s, but investment levels – and therefore employment creation rates – are low.

This is partly caused by market concentration that gives large conglomerates too much market power to extract higher margins than would have been possible in a more competitive environment, and partly by a low level of confidence in the post-1994 democratic project by a business class that remains dominated by white decision-makers. Even international financial institutions such as the International Monetary Fund have underlined the concentration of product markets as problematic and in need of deep reforms.

Using SOE procurement spend has tended to reinforce investment in “big and shiny” capital-intensive projects concentrated within the mineral energy complex. This reinforces a pattern of job-starved economic growth in an economy with one of the highest unemployment rates in the world.

What is therefore really needed is employment- and livelihood-creating investments across a wide spectrum of small and medium enterprises capable of absorbing large numbers of unskilled and semi-skilled workers. This, however, will need to be supported by a proliferation of innovations that emerge from what are often referred to as “triple helix” innovation networks (partnerships between enterprises, knowledge institutions and state institutions), which connect knowledge and market opportunities with investment flows and an enabling regulatory environment.

Innovative policy, which “creatively destroys” to engender new forms of economic development, lies at the heart of true inclusive economic growth. This kind of strategy, however, will only be realisable if the financialisation of the economy is complemented by, for example, channelling more public funds through South Africa’s well-developed development finance institutions and redirecting the investments of these institutions away from blue chip companies and/or capital intensive projects into higher risk employment- and livelihood-creating enterprises located in the private and nonprofit sectors.

The Mandela promise

Thirdly, all stakeholders, in particular the political actors who will replace the Zuma-centred power elite at some point in the future, must commit to realising the vision of a new economic consensus within the framework of the Constitution and relevant legislation.

The recent trend to regard the Constitution and the rule of law as an obstacle to radical economic transformation is dangerous and needs to be stopped. Transformation is perfectly compatible with the Constitution and respect for the judiciary. Indeed, without this, the necessary trust that is required for “triple helix” employment- and livelihood-centred economic development will not materialise. A new trust compact is required if stakeholders are going to work together in meaningful ways.

In short, the promise expressed by Nelson Mandela during his inauguration speech in 1994 continues to be what all South Africans aspire to achieve. It is a promise that all South Africans expect government to understand and fully support across every sector.

It is, however, a promise that has been betrayed by the Zuma-centred power elite. In the process, the ANC has been marginalised from realising the promise, made explicit by the fact that the so-called top six of the ANC did not support the Cabinet reshuffle nor the recent re-appointment of Brian Molefe as Eskom chief executive.

It is, nevertheless, a promise that can still be achieved if a new economic consensus emerges to realise authentic and truly inclusive radical economic transformation. It is time, therefore, for political conditions to be created that enable and catalyse the realisation of our founding promise.

What is clear is that state capture by shadowy elites has profound implications for state institutions. It destroys public trust in the state and its organs; it weakens key economic agencies that are tasked with delivering development outcomes; and it erodes confidence in the economy.

When there is no trust in public institutions, there is little goodwill to express solidarity through tax; large companies are predisposed to sit on cash rather than reinvest the profits; criminality proliferates and exploits weaknesses in intelligence and crime enforcement authorities; and capital and skills flee the country.

The majority of South Africans will bear the brunt of these corrosive developments. Worryingly, large-scale corruption enables much wider corrupt activities to go undetected in the lower tiers of government. Under such conditions, it is impossible to achieve transformative objectives that could improve the livelihood of most South Africans.

This is an extract from Betrayal of the Promise: How South Africa is Being Stolen, released by the State Capacity Research Group

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